A Life-Cycle Model with Ambiguous Survival Beliefs

SAFE Working Paper No. 73

60 Pages Posted: 29 Oct 2014 Last revised: 13 Oct 2015

See all articles by Max Groneck

Max Groneck

Stockholm School of Economics, Department of Economics

Alexander Ludwig

Goethe University Frankfurt - Research Center SAFE; University of Cologne - Faculty of Management, Economics and Social Sciences

Alexander Zimper

University of Pretoria; Kiel Institute for the World Economy

Multiple version iconThere are 2 versions of this paper

Date Written: October 2, 2015

Abstract

Based on a cognitive notion of neo-additive capacities reflecting likelihood insensitivity with respect to survival chances, we construct a Choquet Bayesian learning model over the life-cycle that generates a motivational notion of neo-additive survival beliefs expressing ambiguity attitudes. We embed these neo-additive survival beliefs as decision weights in a Choquet expected utility life-cycle consumption model and calibrate it with data on subjective survival beliefs from the Health and Retirement Study. Our quantitative analysis shows that agents with calibrated neo-additive survival beliefs (i) save less than originally planned, (ii) exhibit undersaving at younger ages, and (iii) hold larger amounts of assets in old age than their rational expectations counterparts who correctly assess their survival chances. Our neo-additive life-cycle model can therefore simultaneously accommodate three important empirical findings on household saving behavior.

Keywords: Bayesian learning, likelihood insensitivity, ambiguity, Choquet expected utility, dynamic inconsistency, life-cycle hypothesis, saving puzzles

JEL Classification: D91, D83, E21

Suggested Citation

Groneck, Max and Ludwig, Alexander and Zimper, Alexander, A Life-Cycle Model with Ambiguous Survival Beliefs (October 2, 2015). SAFE Working Paper No. 73. Available at SSRN: https://ssrn.com/abstract=2515703 or http://dx.doi.org/10.2139/ssrn.2515703

Max Groneck

Stockholm School of Economics, Department of Economics ( email )

Germany

HOME PAGE: http://https://www.hhs.se/en/Research/Departments/DE/

Alexander Ludwig (Contact Author)

Goethe University Frankfurt - Research Center SAFE ( email )

(http://www.safe-frankfurt.de)
Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany

University of Cologne - Faculty of Management, Economics and Social Sciences ( email )

Albertus-Magnus-Platz
Cologne, D-50923
Germany

HOME PAGE: http://www.wiso.uni-koeln.de/cmr/alexludwig

Alexander Zimper

University of Pretoria ( email )

South Africa

Kiel Institute for the World Economy ( email )

P.O. Box 4309
Kiel, D-24100
Germany

Register to save articles to
your library

Register

Paper statistics

Downloads
109
rank
168,356
Abstract Views
1,080
PlumX Metrics